Real Estate Scams: Criminals Target Your Down Payment

Real Estate Scams: Criminals Target Your Down Payment
Image by Scott Graham

From Birch Gold Group

Joyce and Ben, a couple in their 60s, who asked that their full name not be used to protect their privacy, had finally found a perfect home. A tidy townhouse near their grown children and grandchildren. Better yet, they could afford it  – if they took out a second mortgage on their home to buy the new property in cash (as required by the seller).

They made an offer, which was accepted. They were overjoyed.

Joyce and Ben signed a contract and prepared for the closing. They wired a $91,500 payment to the account number their real estate attorney emailed them. Ben remembers prudently double- and triple-checking the digits – he wanted to make absolutely certain the information was correct.

Two days later, Joyce and Ben sat down with their attorney and the seller’s rep to finalize the sale. But when Joyce handed over their wire transfer confirmation, the seller’s rep said, “That’s not our account.”

The attorney asked, “Where’d you get that information?”

“We said, ‘Well, you sent it to us,’” Ben recounted, over a cup of coffee. “He said, ‘I didn’t send you that information.’ And that’s when we knew…”

Ben and Joyce immediately reached out to their bank, but it was too late to stop the wire. (Generally speaking, wire transfers are irreversible after 30 minutes – unless the transfer has already been picked up or deposited.)

All of their savings, as well as money they’d borrowed, was gone.

Ben and Joyce aren’t alone. This financial scam, where criminals hijack a real estate purchase, is far more common than most people realize…

An epidemic of real estate payment fraud

“It’s an epidemic now,” says Diane Tomb, CEO of the American Land Title Association. “Four years ago, we heard about this kind of thing a couple times a month. Now it’s multiple times a day.”

Scammers pull off this particular sort of fraud through business email compromise – basically, hacking someone’s work email. Once in, they simply monitor the account for payment instructions. Then they pounce.

Business email compromise is a lucrative niche, costing $123,000 per incident on average. That’s probably why this type of fraud has grown fourfold over the last five years.

And the complexity of real estate transactions? Anyone who’s ever bought a house knows, there are so many parties involved: The lender, your realtor, the listing agent, the homeowners insurance company, the appraiser, the title company, the inspector, the real estate attorney and the notary. Even the smoothest real estate purchase means dozens of phone calls and hundreds of emails over two to three months.

This is the perfect cover for a scammer. “At the 11th hour, the buyer will get an email saying, ‘There’s been a change in plans. Send your money here,’” says Tomb. And the money is moved swiftly to thwart tracing, sometimes bouncing through multiple accounts, with the help of money mules, and finally overseas, according to a recent financial trends analysis of business email compromise in the real estate sector by the U.S. Treasury’s Financial Crimes Enforcement Network.

“Most buyers learn that their life savings is gone when they show up to the closing table,” according to Tom Cronkright. He’s the CEO of CertifID, a wire fraud recovery and prevention firm.

“They’re asked by the notary closer for a check, and the buyer says, ‘What are you talking about? I wired that last week.’ There’s a bad closing experience and there’s that. A crisis.”

Ben recalls the moment he and his wife discovered the fraud, describing their initial reaction as “complete disbelief and shock.”

Since being scammed, they’ve worked tirelessly to pay off the second mortgage. “We were both going to retire within a couple of years, but all plans were destroyed,” Ben explained. He continues to work full-time, while Joyce finally retired earlier this year. They’re sadder but wiser, and want to share their story to help others stay safe.

Here’s how to keep your finances (and future plans) safe from scams like this.

How to protect yourself from real estate wire fraud

​​Discuss payment arrangements up front. When you first connect with a real estate agent, ask how money is going to move during the transaction. Ask about the agent’s title company, and how to keep payments to them safe. If the agent can’t easily explain how funds will be protected through the process, consider finding a different agent.

Confirm all wire transfer instructions in person or by phone. Never ever email any financial information. When calling to confirm payment instructions, be sure to use your contact’s actual number. Don’t use the same contact information included in the email! That could lead you to the impostor, who’ll be delighted to confirm those incorrect payment instructions.

Be leery of sudden changes of plan. “It’s extremely rare for wiring instructions to change at the last minute, or that the instructions will be provided by email,” the National Association of Realtors notes in its online tips for avoiding financial scams.

Use two-factor authentication to protect your accounts. Two-factor authentication means that, in order to access your accounts, you’ll type in your password and enter an authentication code that you receive by text, phone or email.

What to do if you lose money to wire fraud:

  • ​​The faster you can respond, the better. Immediately contact your bank and explain the situation to see if they can help. (Remember, though, most wires are irreversible.)
  • Notify the company that provided the incorrect wire transfer information they’ve been hacked. This might save several other buyers from a similar experience.
  • File a report with the FBI online, as well as in person at your nearest FBI office.
  • File a report with the Consumer Financial Protection Bureau online.

Knowing what to look out for is key to defending against most scams. To help you detect and avoid financial scams, Birch Gold Group has pulled together an extensive resource guide that is now available on our website. The Birch Gold Group Scam Protection Resource Guide helps you identify warning signs and provides you with tips on how to avoid fraud.

2023, cyber fraud, Featured, scam watch